Sometimes it seems like you need a Ph.D. to decode car insurance terms. What do all the numbers mean? What is the difference between comprehensive insurance and collision insurance? And for goodness’ sake, what the heck do all those acronyms stand for?

If you’re confused by all the terms (and frankly, who isn’t?), don’t worry. We’ll translate them for you in this article so you know exactly how much insurance you should get and which ones you can skip.

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Liability insurance

Virtually all states require you to have liability insurance. This—and other types of auto insurance—will cover you, anyone else listed on your policy, and anyone who you let borrow your car that does not live with you.

Liability insurance is designed to pay for one thing: your legal obligation to someone else if you injure them or their property. It won’t cover any medical bills for yourself, your passengers, or the cost to fix or replace your own car.

Liability insurance is often confusing because it’s presented as a three-number series (e.g., XX/XX/XX). The first number indicates how much the policy will pay towards bodily injury per person, the second number indicates how much it’ll pay towards bodily injury per accident, and the third number indicates how much the policy will pay towards property damage per accident.

Each state dictates how much minimum coverage you must have in each area. For example, California requires a minimum liability insurance level of 15/30/5. So, if you cause an accident, it’ll pay up to $15,000 towards medical bills for every person you’ve injured, up to a limit of $30,000 per accident (source).

That means you can fully cover $15,000 worth of medical bills for two people, $10,000’ worth of medical bills for three people, etc.. This policy will also pay $5,000 towards any property damages you cause.

Personal injury protection (PIP) or medical payments (MedPay)

Paying someone else’s medical bills if you injure them is the right thing to do, but what if you or your passengers are injured in an accident? That’s where PIP and MedPay insurance comes into play.

Not all states require this, but it can be a good idea, especially if your own medical insurance is a bit on the lean side. MedPay insurance covers medical payments and/or funeral expenses. PIP will also cover medical payments and funeral expenses, plus any lost wages or extra services you need to help you cope with being injured.

Uninsured or underinsured motorist insurance

Did you know that 13% of drivers nationwide don’t carry auto liability insurance, according to the Insurance Information Institute? It’s even worse in some states. In Oklahoma, Florida, and Mississippi, a full 26%, 24%, and 23% of drivers are uninsured, respectively (source).

If you’re hit by one of these uninsured motorists, you could be on the hook for your own medical bills. Even if they do have insurance, it might not be enough to cover all of your medical bills if you’re in a very serious accident.

Getting uninsured or underinsured motorist insurance can help protect you if you’re hit by one of these drivers. It’s not required in all states, but it certainly is a good idea—especially if you live in a state with a high number of uninsured motorists.

Uninsured motorist property damage insurance

So, you thought that uninsured/underinsured motorist insurance covered the damage done to your car or other property, too? Think again.

If you also want any property damage caused by uninsured or underinsured motorists to be covered, you’ll need to buy a separate policy covering just the property damage from these drivers.

Collision insurance

No one wants to cause an accident, but sometimes it happens regardless of our best intentions. In that case, you’ll have to foot the entire bill to repair or replace your own car—unless you have collision insurance.

This is entirely optional on your part. However, it’s a wise decision if you own a car that you can’t afford to replace.

Comprehensive insurance

We’ve covered how to protect your car against accidents caused by yourself or other people, but what about mother nature? If your car is stolen, damaged by a collision with an animal, a hailstorm, a fallen tree branch, or any number of things, its repair or replacement costs are only covered by comprehensive insurance.

This is another optional insurance, but, again, it’s a wise decision if you can’t afford to replace your current vehicle if something happens to it.

Gap insurance

Let’s say the worst scenario happens. Your car is totaled right as you drive off the lot with a brand-new auto loan. Unfortunately, you’d still be on the hook for the entire amount—unless you have gap insurance.

These handy policies will pay off the remaining amount on your auto loan or auto lease, freeing you up to start over from square one (hopefully with better luck next time).

This is another optional policy. It isn’t a bad idea, though, especially if you’ve got a very large auto loan or are just beginning a new auto lease.

Which types of car insurance should I choose?

Check with your state’s DMV or Secretary of State office to see what your minimum auto insurance coverage levels are. After that, consider which policies you really need and which you can skip.

It’s a wise decision to purchase any policies that are within your budget and will let you sleep peacefully at night.

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